As we enter tax season, many Americans will begin receiving tax refunds. Some refund recipients will be receiving public benefits from the SSI and/or Medicaid programs.
It’s important to remember that tax refunds received in 2012 are disregarded for 12 months for purposes of determining eligibility for federally funded assistance programs like Medicaid or SSI. This rule is positive for beneficiaries of these programs.
As a result of The Tax Relief Act of 2010, tax refunds may not be treated as countable income for SSI or Medicaid purposes. As noted in an Informational Bulletin issued by the government’s Centers for Medicare and Medicaid Services (CMS):
“[t]ax refunds and advance payments are not to be counted as income when determining eligibility under Medicaid or CHIP for the recipient of the payment, or for any other individual. Therefore, in addition to not counting the refund or payment as income to the individual, any payment made is not countable as income when determining Medicaid or CHIP eligibility for a spouse or other family members. Tax refunds and advance payments may not be counted as income to someone else even if they are given to that person.”
Any money received through a tax refund will not be a countable resource for 12 month following receipt of the funds. SSI and Medicaid recipients are under no obligation to segregate the funds from their other resources. The same rule applies to tax refunds received prior to an application for SSI or Medicaid, which means that so long as an applicant can point to funds in his account that are traceable to a tax refund during the previous year, those funds will not be a countable resource until the year has passed.
The CMS' Informational Bulletin addresses what happens when an applicant seeking Medicaid long-term care benefits places a tax refund into a trust. According to the bulletin, the Tax Relief Act
"effectively precludes applying penalties under section 1917(c) of the Social Security Act to individuals who, in applying for long term care benefits under the Medicaid program during the period in which tax refunds or advance payments are not countable either as income or resources . . . dispose of part or all of the refunds or advance payments in a manner that normally would be considered a transfer of assets for less than fair market value."
The new treatment applies to any refunds or credits received after December 31, 2009 through December 31, 2012. The relevant statutory provisions are found in Section 728 of the Tax Relief Act of 2010. That section reads:
REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.
`(a) In General- Notwithstanding any other provision of law, any refund (or advance payment with respect to a refundable credit) made to any individual under this title shall not be taken into account as income, and shall not be taken into account as resources for a period of 12 months from receipt, for purposes of determining the eligibility of such individual (or any other individual) for benefits or assistance (or the amount or extent of benefits or assistance) under any Federal program or under any State or local program financed in whole or in part with Federal funds.
`(b) Termination- Subsection (a) shall not apply to any amount received after December 31, 2012.'